China’s state-owned enterprises are
increasingly engaged in various activities in the South China Sea. Their
involvement, usually mingled with nationalism in China, further complicates
Beijing’s policy on the dispute.
On 12 July 2016, a special arbitral
tribunal under the United Nations Convention on the Law of the Sea (UNCLOS)
issued its verdict over the case brought by the Philippines against China in
the South China Sea dispute. Since the start of the arbitration, China has
steadfastly held on to its stance known as the Four Nos: No Participation, No
Acceptance, No Recognition and No Execution.
Many analysts attempted to interpret
China’s reaction to the arbitration from Beijing’s strategic and regional
security policy perspectives. What is missing in all the analyses is the
increasing role of Chinese corporate players, many of which are state-owned
enterprises (SOEs). Exploring the role of these Chinese SOEs helps to enrich
our understanding of China’s behaviour in the dispute. In fact there is a case
to be made that China’s tourist industry is playing a complicating role in
China’s positioning in the South China Sea dispute.
Involvement of Chinese Tourist Companies
It is easy to understand that the
Chinese defence industry has significantly benefited from the South China Sea
disputes. The stock market offers a glimpse of their latest gains. In the weeks
leading to the tribunal ruling, a few notable Chinese stocks experienced
significant price hikes and rising trading volume.
For example, the shares of Beifang
Daohang Technological Corporation, affiliated to China North Industries Group,
rose by 8.8 per cent. Another example includes China RACO which specialises in
satellite communication. Its shares rose by 6.6 per cent. The shares of State
China Shipping Corporation rose by 19.6 per cent between 24 June and 12 July
2016. In addition to the defence industries, there are other less well known
but active SOEs reaping benefits from the South China Sea disputes.
Although the tourism industry may
seem to be the unlikeliest candidate to experience growth in times of regional
conflict and uncertainty, it is not the case for Chinese companies that offer
tour services to the South China Sea. On the day after the release of the arbitration
ruling, two aircraft, chartered by China Southern Airlines and Hainan Airlines,
both state-owned enterprises, departed from Haikou and landed on Meiji/Mischief
Reef and Zhubi/Subi Reef respectively. Pundits in China suggested their
government may eventually come up with a plan in the future to utilise the
tourism resources on the newly-constructed artificial islands occupied by China
in the South China Sea.
Chinese tourist companies had
already started their businesses in the Paracels. The Coconut Fragrance
Princess Cruise was introduced in 2012 by the Hainan Strait Shipping Co. Ltd.
(HSSC), a local SOE, to promote tourism in the Paracel Islands, especially to
Quanfu Dao/All Wealth Island and Yagong Dao/Male Duck Island. Initially, the
Princess Cruise made losses and was subsidised by the government. But its
operational performance improved after Sanya became the departing port in
September 2014 and Yinyu/Observation Bank was added to the existing two
destinations.
Such tourism operations are inevitably
linked to nationalism. Tour activities include flag-raising and oath-taking
ceremonies. It is believed that promoting travel resources bolsters China’s
sovereignty and rights in the South China Sea. Over 10,000 Chinese tourists,
touted to be patriots, have visited the Paracel Islands. Such tours continue to
be supported and welcomed by the general Chinese public, especially after the
arbitration.
Growing Appetite of the Tourist Sector
The Chinese corporate players are
developing an even stronger interest in the tourism resources in the South
China Sea. In April 2016, China COSCO Shipping Corporation started a cruise
company in partnership with two other national SOEs, namely China Travel
Service Group (CTSG), and China Communications and Constructions Corp. (CCCC).
COSCO is seeking opportunities to expand operations from Paracels to Taiwan and
other islands in the neighbouring countries, as part of China’s Maritime Silk
Road cultural tour.
During the exhibition of China
Nanhai Cruise, Party Chairman and CEO of China COSCO Xu Lirong reiterated that
tours to the South China Sea would be part of the company’s future development
plan. He also emphasised that operating businesses along the “One Belt, One
Road” (OBOR) route is one of China’s SOEs’ responsibilities. Similarly, the
CCCC has also actively responded to the OBOR initiative to focus on the
development of maritime economy.
Besides developing a cruise terminal
in Sanya Feng Huang Island about 330 kilometres from Yong Xing/Woody Island,
together with CTSG, the CCCC co-founded the Sanya International Cruise
Development Company (SICDC) with the support of Sanya Municipal Government in
December 2015.
The fortunes of Chinese SOEs are
inexplicably linked to their double missions which includes not only financial
goals but also the obligation to achieve the nation’s socio-political
objectives. This is apparent among the SOEs involved in the South China Sea. By
including the realisation of tourism potential in the South China Sea as one of
China’s strategies, the development of civilian usage within the disputed
maritime territory becomes a mandate for the SOEs.
In 2012, the government declared
national marine zonings that essentially stipulated state support for the
oceanic industry in Nansha/Spratly Islands, Zhongsha/Macclesfield Bank, and
Xisha/Paracel Islands, and travel resources, especially in Yongxing/Woody
Island.
Corporate Involvement Further Complicates China’s
Policy
After the tribunal ruling, China is
likely to continue to encourage its SOEs to invest in the South China Sea
because Chinese decision makers believe that the presence of Chinese SOEs in
the area helps enhance China’s sovereignty and maritime claims in the South
China Sea. The expansion of SOEs’ interests in the South China Sea, in turn,
makes it more difficult for China to back off from its South China Sea claims
or soften some of its positions.
But Beijing faces a dilemma. In
addition to the negative impacts on China’s relations with some regional
countries and Beijing’s regional strategic influence, the disputes in the South
China Sea cast a gloom over some of Beijing’s more ambitious regional economic
integration plans such as the 21st Century Maritime Silk Road (MSR) initiative,
which requires the participation and cooperation of many countries in Southeast
Asia.
The tensions and disputes in the
South China Sea make the implementation of the MSR only possible bilaterally,
that is, between China and willing parties in Southeast Asia. A multilateral
approach for the MSR, which would be ideal for the purpose of maximising the
benefits of the initiative for all participating countries, is very unlikely at
least in the foreseeable future unless the South China Sea becomes far more
stable than it is now.
*Xue Gong is a senior analyst with the China
Programme at the S. Rajaratnam School of International Studies (RSIS), Nanyang
Technological University, Singapore.
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